How Weekly Options Spread Short-Term Order Flow and Affect Pinning
Summary
The document explains a claim about how weekly options may change trading around options expiration. When traders can take short-term positions in several weekly contracts as well as the front-month monthly contract, their activity is spread across expirations. That can reduce open interest concentrated in the monthly contract and may weaken pinning effects there.
The quoted market observation also suggests that pinning could become more noticeable in weekly options, since short-dated trading shifts toward them. The supporting evidence is anecdotal: the source explicitly offers no hard numbers and says the interpretation may not be quantifiably established. The accepted clarification defines the phrase as trading across multiple weekly options together with the front-month monthly option, rather than concentrating activity in the front month alone. The document describes a proposed market mechanism, not a measured causal result.
Key ideas
- Short-term options activity can be distributed across weekly expirations and the front-month monthly contract.
- Spreading activity across expirations can reduce open interest concentrated in the monthly option.
- The source proposes that this may weaken monthly expiration pinning while making weekly pinning more apparent.
- The suggested change in pinning is based on observation rather than quantified evidence.
Tags
Full text
# What does 'near term order flow to be distributed across short term options' mean?
# What does 'near term order flow to be distributed across short term options' mean?
Please see the red phrase below. Guide to Option Pinning at Options Expiration | Investing With Options
> What Have Weekly Options Done To Pinning? That's a great question for a graduate student to cover in a thesis paper. I don't have any hard numbers, but I'll give my thoughts based on watching the market on opex this year. The introduction of weekly options into many pinning candidates has a very specific effect. Those traders looking to take positions in the short term no longer have to use the front month options. This lead to $\color{red}{\text{near term order flow to be distributed}}$ across short term options, which has led to decreased open interest on the monthly options going into expiration. So what do you think would happen here? Sure, the pinning effect should be reduced during monthly options expiration, and I think it has. But, much to my surprise, there has been a pickup in pinning effects in the weekly options. I don't know if this is quantifiably true, but the way that some of these weekly options trade on Friday lead me to believe that there may be a resurgence in the dark art.
## Answer by CABLE (score 2, accepted)
https://quant.stackexchange.com/a/54239
It just means market participants who trade short term option now trade several different weekly options together with the front month monthly option rather than only the front month option.Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.